The din regarding the economic slowdown is getting louder by the day. While it was important till recently to acknowledge that the Indian economy is not decoupled from the rest of the world, and that India cannot avoid the fallout of the meltdown of the global economic order, it is equally important today to understand that for India, there is adequate justification to start feeling cautiously optimistic once again. If the government and the business leadership continue to remain in a state of panic, and force a further slowdown on itself, it will only be a case of a self-fulfilled prophecy.
From India’s perspective, there are many emerging silver linings that must be taken cognizance of. Firstly, the collapse of the bubble in global commodity prices including oil implies a return to equilibrium. Fortunately for India, the concurrent onset of recession in the world’s largest-consuming economies means that there will be stagnation or decline in demand for almost all major commodities — this will imply further easing of inflationary pressures on the Indian economy. It is important to remember that the Indian government and the Reserve Bank probably shot themselves in the foot by choking India’s growth story after panicking when inflation galloped on a weekly basis for most of the second half of 2008. The easing of inflationary pressure, especially in the backdrop of the forthcoming general elections, allows the government to become pro-growth once again should it choose to do so.
Secondly, a contraction in major global economies may turn out to a blessing for low-cost producers and exporters of myriad goods and services. With pressure on just about every business in the developed world to reduce cost and improve efficiency, and pressure from the consumers of the developed world on retailers and other goods and services providers to offer more value-priced options and solutions, India stands to gain sooner than later. The timing of such gains may vary from sector to sector but within the next 12 months, just about every exporting sector from India should be in a position to benefit, provided the companies in such sectors are prepared for the same. Consumable products such as clothing, footwear, pharmaceuticals and chemicals should see an export-led recovery within the next three to six months, while automobiles and auto components, engineering goods and IT/ITES should see a return to “normalcy” in terms of business growth within the next 12 months. The current contraction in exports can be easily explained by the fact that as the developed economies accept that they are in a recession, during the last six months or so, just about every business in such economies has been introspecting — this has led to drastic internal cost cutting and thinning down of inventories. While there may still be some room for further cost cutting and reduction of inventories in the entire supply chain, very shortly, the surviving businesses in the major economies will revert to focusing on running the businesses themselves. Further efficiency gains for such businesses will probably come from a more globalized supply chain, and restocking of retail shelves will necessarily imply the release of fresh purchase orders.
As far as the domestic Indian economy is concerned, the shock of the last few months has been very timely. It has forced most companies to get off the stock market/Forbes list of billionaires-induced highs and get down to undoing the excesses of recent years. While this will certainly cause some pain to those who are getting downsized or seeing their compensation getting right-sized, and some loss of face for realty, retail, financial services and aviation billionaires and centi-millionaires, there is no denying the fact that the Indian economy is not contracting and in fact, is poised to grow at a relatively healthy real growth in the range of 5 to 7 per cent in the current fiscal and perhaps around 5 per cent next year.
It may sound heretical to suggest to the Indian government, the leaders of Indian businesses, the various chambers of commerce and other industry bodies to take some inspiration from M S Dhoni and his team. Their most recent success in Chennai is not only about sparkling talent but also about exceptional self-belief and determination to fight to win. Not so long ago, another Indian captain would have automatically planned to get into a match-saving mode and the pundits would have actually lauded such a defensive move. However, as we can now see, playing to win requires a different mindset and an appropriately different strategy that can yield spectacular results if executed with determination.
India must now play to win. It must put an end to the mourning period it has been, perhaps rightly, observing in the last few months and usher 2009 with enthusiasm and positive energy. The government can give the best stimulus package to the economy by urgently undertaking bold policy reforms and creating a more conducive environment for the flow of international investment into India. The public and private industry can then recreate the growth momentum by prudent but determined action targeted towards winning rather than mere self-preservation.
